Paper/Speech Details of Conference Program for the 15th NISPAcee Annual Conference Program Overview General Session Author(s) Gabor Kovacs Szechenyi Istvan University Gyor Hungary Title Financing local governments in Hungary by issuing municipal bonds: experiences and future prospects File Paper files are available only for conference participants, please login first. Presenter Abstract Abstract The transition to a market economy in Hungary began at the end of the 1980s. The municipal sector has been operating under new circumstances with respect to both legal and economic regulations since 1990-91. Although the most important steps of the transition have already been completed, the evolution of the municipalities cannot be regarded as fully accomplished. Due to the decentralization process – launched in 1990 – local government revenues decreased significantly in the last decade in real value, while the level and scope of services provided did not decrease at the same time. With help of issuing municipal bonds – as a special financial technique of borrowing – absorption capacity of local governments could be improved. The regulatory framework of borrowing activity of local governments in Hungary can be regarded as quite liberal and in my opinion the central regulation created favourable conditions for the issuance of municipal bonds. Concerning the potential demand side of municipal securities there is a cumulative interest of banks and other institutional investors in bonds. The major problems occur on the supply side of municipal bonds. Local governments have a wrong impression about bonds and in general they are not aware of the economical and financial attributes of the securities. Borrowing usually is regarded only as the final way for financing and bonds are considered only as bank loans in disguise. The objective of the paper is to present and analyse the main characteristics of Hungarian local govern-ment’s bond financing and to assess and judge the applicability in Hungary of the bond as a local government fundraising tool reflecting the experience of the studied issues. The sample being studied includes all the Hungarian bond issues between 2002 and 2006. The observation and the investigation have been executed primarily with the aid of personal interviews. The interviewed people are all the employees – generally at managerial posi-tion – of the given local government and issuer who were directly involved into the procedure of the issue.
